By Charles Lane
Everyone has a right to express his view on monetary policy. Members of Congress across the ideological spectrum bark at the Fed all the time.
But when the speaker of the House and the minority leader of the Senate, and their deputies, all members of a party whose presidential candidates are going around the country criticizing the Fed chairman, tell the Fed that “the American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated,” as they wrote Tuesday to Fed Chairman Ben Bernanke — that’s provocative.
Intentionally or not, it conveys an implicit threat of legislative action if the Fed doesn’t change course. By alluding to public dissents of Fed board members and asking Bernanke to distribute their letter to the board, the Republicans also seemed to foment internal Fed divisions.
Troubling as it is, this sort of political pressure is bound to happen when an unelected central bank commits immense quantities of national wealth to unconventional policies — even though the Fed has acted with both good intentions, and, to the extent it helped avoid a deflationary spiral in 2008, good results.
Nevertheless, the Republicans have a point. The Fed’s more recent unconventional measures such as “quantitative easing” are far more controversial among economists. It would be a lot easier to defend the Fed’s independence if the clear consensus of expert opinion favored its actions. But there is no such consensus.
When the Supreme Court parses a statute and determines, based on applicable precedent, that one party can sue another, people may disagree. But they have to concede that the court was deciding a legal question uniquely within its expertise and its authority. When the court loosely construes broad constitutional language to guarantee, say, a right to abortion, it ventures into the political thicket.
Right now, the Fed is a bit like the Supreme Court in Roe v. Wade. It’s pursuing a policy most of its members believe is right — and that might, indeed, be right. But there is not much more consensus, societal or scientific, about the costs and benefits of quantitative easing than there was about the personhood of the fetus.
You have to admire Bernanke for taking the heat. He frequently invokes the dual mandate Congress gave the Fed — to pursue maximum employment and stable prices over the long term.
But the dual mandate is a source of his troubles. It gives the Fed broader responsibility — and, some would say, broader power — than the current state of objective economic knowledge supports.
Central banks in the rest of the world have only one mandate: to ensure price stability. Would a single mandate create an anti-inflationary bias at the Fed, disabling it in times of high unemployment? Actually, as Harvard economist Greg Mankiw has suggested, monetary policy today might well be just as expansionary under a price-stability mandate. That’s because the Fed would be required to fight both inflation and deflation — and deflationary pressures are strong at present.
But the political context would be much different. Under simpler rules, the central bank’s claims of legitimacy would be that much clearer, and its resistance to politicization that much stronger.
The central bank could focus on its job, with less worry about angry letters from Congress. And there would be one less scapegoat for politicians to blame when they fail to meet their own responsibilities.
The writer is a member of The Post’s editorial page staff.